Let's glance at why should one consider investing in mutual funds over other options to achieve their financial goals:
These are type of funds that primarily invest in stocks and main investment objective of this class of funds is long term capital growth. Further, there are many types of equity funds which are categorized based on the size of the companies like large, medium or small.
This type of mutual funds invests in stock of companies that pay dividends, which are profits that a company shares with its stakeholders. These are income generating funds & tend to be less risky than other types of funds. It is a good choice of investment for those who seek regular payments over appreciation.
These funds are known as safe investments and provide fixed returns. In these, funds are invested in debt instruments like company bonds, government bonds, fixed income assets.
The strategy used by these funds are to maintain a certain percentage of mix of both fixed income & equities. Normally, a typical balanced fund will maintain a distribution of 60% equity & 40% fixed income. A similar type of fund known as “Asset Allocation Fund” follows on similar objectives that of Balanced Funds but then these kinds of funds do not hold any specified percentage of any asset class.
Mutual funds are managed by professional people who have years of experience handling different types of assets. They are a group of dedicated fund managers that handles all financial decisions based on the performance & prospects available in the market.
If saving time & convenience is what you seek then mutual funds are an ideal choice for investment. Because of low investment amount options, multiple choices based on one's life & financial goals, offering the ability to redeem them on any business day, mutual funds are much sought after.
Since every mutual fund is managed & regulated by SEBI, you need not worry as your investments are safe. SEBI has several regulations & legal frameworks in place which ensures that your investments are managed in a disciplined manner. Now it's true that every investment is subject to certain risks, however, prudent selection based on strong market knowledge & fundamentally sound securities with diversification can help hedge such risks and generate high returns on your investments.
Investing in mutual fund is a smart way of beating inflation as it helps investors to generate inflation-adjusted returns, without spending much time or energy on it. This choice of investing makes sure that the purchasing power of your money doesn't go downhill over some years.
As compared to investing directly in capital market, mutual funds offer investors the advantage of low cost investment. Most stock options require a huge capital to begin with, on the other hand mutual funds can be started with as low as Rs.500 per month & investors can derive benefit from the long-term equity investment.
Mutual funds help counter risks to a large extent by equally distributing your investments across diverse range of asset classes. Mutual funds work by the adage “Do Not Put All Your Eggs in One Basket”.
Systematic Investment Plan (SIP) is a very easy & convenient mode of making investments in mutual funds on a regular basis. SIP allows one to cultivate a habit of savings & creating wealth for the future by starting early. Offering ease & flexibility, through SIP one can create a planned approach towards investing right. SIP gets auto-debited from the investors account and the amount is invested into a mutual fund scheme that has been specified. The investor then gets a certain number of units which is based on the current ongoing market rate. Every-time a SIP is made, additional units keep getting added to the investor's account. SIP has proved to be an ideal choice of investments for retail investors who lack resources to pursue active investments.
Offering a hassle-free mode for investing, one can directly get the SIP amount deducted from one's bank account via a standing instruction to facilitate auto-debit function.
By investing through SIP, you commit to saving regularly. So, with SIP, one gets into a mode of disciplined savings along with creating a path of attaining one's financial objectives & goals.
With SIP, one can decide and increase/decrease the amount as they wish, although it is always recommended to continue SIP with a long-term perspective.
Investing with SIPs leads to long term gains because of the power of compounding & rupee cost averaging. Rupee cost averaging is an automated market timing technique that eliminates one's need to time the market.
STP is a way through which one invests a lumpsum amount in one scheme & regularly transfers a pre-defined amount into another scheme of the same mutual fund house. In the long run, STP helps in cutting down risks to a considerable level & earning good returns. Basically, STP means transferring an investment from one asset or asset type into another asset or asset type. This transfer process happens gradually over a period of time.
Here the investors take out a fixed sum from one investment to the another.
Here the investors take out the profit part of the investment & invest it in another.
Here, the investor has a choice to transfer a variable amount towards the investment.
Through STP, one can balance their portfolio effectively as this method allows the allocation of investments from equity to debt or vice versa. If your investment equity goes up then it can be switched from an equity to a debt fund.
Through STP one can transfer the set amount to a target equity fund while still being invested in a debt or liquid fund. So, an investor stands to gain benefit from the returns of the equity fund to which the funds are being transferred to & at the same time remain protected as a part of the investment remains in debt.
STP helps in averaging out the cost as it assists in buying units when the rates are lower & vice versa.
